Coming off a short week, due to Memorial Day weekend, this week was a relatively slow week at GeoInvesting, in terms of news flow. So, we took the opportunity to catch up on some due diligence in our idea pipeline. We had a chance to interview the CEO of an online goods exchange platform that entered our radar two weeks ago, and we were eager to convey the notes to our members. We ended up adding the stock to our Run2One model portfolio which aims to identify stocks selling well below $1.00, with favorable capital structures, and are reaching growth inflection points. While its not the core of what we do, we do believe in finding value in stocks at any price, which comes in especially handy when other investors ignore these kinds of companies due to negative stigmas assigned to the genre – stigmas such as “all penny stocks are univestible.”
This particular company had some information hidden in its filings that indicate it could be a takeover target at multiples over current prices. While significant amounts of risk remain in management’s ability to execute a turnaround plan, the company just turned a profit, something it has never done in its 10-year history. The company also generates substantial sales. Although we believe the capital structure is not too ideal, it is still within the parameters we are willing to accept.
Finally, company insiders have recently infused significant capital into the company to jump start a new customer relationship that it hopes will ignite growth. See more on our model portfolios here.
We also noted that Ieh Corp (OOTC:IEHC), a company that designs, develops, and manufactures printed circuit connectors for high performance applications saw continued buying from Zeff Capital, who has been purchasing shares on the open market despite the stock hitting new highs (its $22.00 high was a flash print on a huge spread back in September). Zeff Capital is an institutional microcap investor and activist we like to follow due to its ability to sniff out value early. Zeff started buying IEHC in July 2014 when stock was trading ~$5.00
Finally, late in the week we noted that Enthusiast Gaming Holdings Inc (OOTC:EGHIF), a digital media company that develops and operates an online community of video gamers worldwide, announced a merger with Aquilini GameCo and Luminosity to form the leading publicly traded eSports and gaming media organization in North America. Based on our analysis of the transaction, the transactions seem to value EGHIF at its current price of ~$1.27.
We will continue to monitor this development, but with over 300 million shares outstanding, this certainly is outside of our comfort range of less than 50 million shares outstanding. In general, we are keeping our eye out for stocks that are addressing the E-gaming industry. But we think it’s going to be tough to find quality names in the space which will likely be filled with hype. Having said that, we only need one!
Finally, we are about to release a new article on a company that generates meaningful recurring revenue and has over 70,000 monthly subscribers. While the company has a history of growing sales and EBTIDA since 2006, earnings per share performance has been spotty. However, it looks like revenue may have reached a point where consistent profitability may be in the cards. The details surrounding this story will surprise you since its past parent company had significant “hair” on its back and ended up being a fraud.
Heading into next week we are about to release an article on a company involved in the gaming industry and hope to have nice updates from the LD Micro conference taking place June 4 and 5 in L.A.